An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

For the first time in a while, stock market investors are being spooked this week by what’s happening in the bond market. And the reason has something to do with an occurrence that is not exactly in the everyday investor’s lexicon: an inverted yield curve.

Put simply, an inverted yield curve happens when bond yields at the short end of the bond spectrum rise above those at the long end. Usually, the bond market focuses on the difference between the yields on U.S. Treasury two-year notes and those for 10-year notes. When the yield curve inverts, it means the two-year notes pay bondholders more in interest than 10-year notes do, something that’s both rare and counterintuitive.

For economists and investors, it’s a loud warning about the economy’s outlook. One portfolio manager called the inverted yield curve a “harbinger of doom.” It has a scarily accurate track record of predicting economic recessions, which in past decades have arrived six months to two years after an inversion.

Re: An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

hmmmzers

SiTeS a sNaRe, sPiTEful & bArE

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Re: An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

For the first time in a while, stock market investors are being spooked this week by what’s happening in the bond market. And the reason has something to do with an occurrence that is not exactly in the everyday investor’s lexicon: an inverted yield curve.

Put simply, an inverted yield curve happens when bond yields at the short end of the bond spectrum rise above those at the long end. Usually, the bond market focuses on the difference between the yields on U.S. Treasury two-year notes and those for 10-year notes. When the yield curve inverts, it means the two-year notes pay bondholders more in interest than 10-year notes do, something that’s both rare and counterintuitive.

For economists and investors, it’s a loud warning about the economy’s outlook. One portfolio manager called the inverted yield curve a “harbinger of doom.” It has a scarily accurate track record of predicting economic recessions, which in past decades have arrived six months to two years after an inversion.

Re: An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

For the first time in a while, stock market investors are being spooked this week by what’s happening in the bond market. And the reason has something to do with an occurrence that is not exactly in the everyday investor’s lexicon: an inverted yield curve.

Put simply, an inverted yield curve happens when bond yields at the short end of the bond spectrum rise above those at the long end. Usually, the bond market focuses on the difference between the yields on U.S. Treasury two-year notes and those for 10-year notes. When the yield curve inverts, it means the two-year notes pay bondholders more in interest than 10-year notes do, something that’s both rare and counterintuitive.

For economists and investors, it’s a loud warning about the economy’s outlook. One portfolio manager called the inverted yield curve a “harbinger of doom.” It has a scarily accurate track record of predicting economic recessions, which in past decades have arrived six months to two years after an inversion.

Re: An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

For the first time in a while, stock market investors are being spooked this week by what’s happening in the bond market. And the reason has something to do with an occurrence that is not exactly in the everyday investor’s lexicon: an inverted yield curve.

Put simply, an inverted yield curve happens when bond yields at the short end of the bond spectrum rise above those at the long end. Usually, the bond market focuses on the difference between the yields on U.S. Treasury two-year notes and those for 10-year notes. When the yield curve inverts, it means the two-year notes pay bondholders more in interest than 10-year notes do, something that’s both rare and counterintuitive.

For economists and investors, it’s a loud warning about the economy’s outlook. One portfolio manager called the inverted yield curve a “harbinger of doom.” It has a scarily accurate track record of predicting economic recessions, which in past decades have arrived six months to two years after an inversion.

Ez, The fed brought down rates to almost 0 during Obamas eight years and began raising them over and over during trumps second year when the economy was booming. Not sure that could even be considered an indicator considering we’ve never brought interest rates as low as we did during those years

Re: An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

One of you guys need to learn your own history better.. pretty sad that a Canadian has to school you about this..

Did the Democrats and Republicans “Switch Parties”?

The American political parties, now called Democrats and Republicans, switched platform planks, ideologies, and members many times in American history. These switches were typically spurred on by major legislative changes and events, such as the Civil War in the 1860’s, and Civil Rights in the 1960’s. The changes then unfolded over the course of decades to create what historians call the “Party Systems

Re: An Inverted Yield Curve, a Reliable Predictor of Recessions, Has the Stock Market Spooked

Brace for a 15% plunge in S&P 500 next year if the Treasury yield curve fully inverts

Parts of the U.S. bond market are seeing short-dated yields push above their long-dated peers, a “warning sign” for the stock market as Wall Street’s economic expectations for 2019 deteriorate.

That’s what Oliver Jones, an analyst for Capital Economics, said in a recent note, as investors pay newfound attention to the yield curve, the spread between short-dated and long-dated yields. Jones and others are worried that if this gap continues to narrow, more losses will follow for the S&P 500 SPX, -2.33% which has already been retreating from its October highs.

“History suggests that once the Treasury yield curve becomes very flat or starts to invert, the stock market tends to struggle over the following couple of years, as the economy eventually starts to weaken,” said Jones.

Jones says investors may not want to take any chances. In the chart below, he shows that whenever the spread between the 2-year note has matched or pushed above the 10-year note yield, the S&P 500’s returns over the next two years has turned negative. He expects the S&P 500 to slump 15% in 2019.